Why is the UK rental market in chaos?

The number of advertised rental properties in the UK has fallen markedly in the past three years, pushing up prices, Sky News analysis has found.

Advertised rentals have fallen in all 20 biggest UK cities. In half of them, the decline was of 40% or more.

The upwards pressure on rents is being exacerbated by rising demand.

Sky News analysis of data from SpareRoom, the flatmate-finding service, shows that the average number of inquiries per rental ad in the UK is almost four times what it was in September 2019, rising from 3.2 to 11.9.

In Sunderland, almost 10 times as many people are responding to an ad as in September 2019 and in Bradford, there has been a six-fold increase.

The most competitive area for rentals is the west central area of London, where listings receive 86.5 inquiries on average, up from 16.1 in September 2019.

Neal Hudson, director of Residential Analysts, said that some properties may not even make it online because there is so much interest.

"Estate agents and landlords have a massive book of people that are looking for property and so they're not going to go to the hassle of sticking it on Zoopla or even on their own website," he said.

Rising mortgage rates affect renters too

A lot of attention has been given to the impact of rising interest rates on homeowners.

But renters make up a bigger portion of the market and are also negatively affected by the rising cost of mortgages.

"Downturns tend to lead to an increase in demand for rental property because mortgages become either too expensive or unavailable, particularly for first-time buyers," Mr Hudson said.

"You end up with a pressure cooker situation where more and more people are coming in, but not as many people are able to get out and that can lead to big increases in rents."

He added: "But we haven't really seen this level of price growth heading into a downturn. So, whether there's the room within budgets to be able to absorb that is a big unknown."

Anthony Breach, senior analyst at the Centre for Cities, said that buy-to-let landlords will struggle to pass on increased mortgage payments to their tenants, which could constrain supply yet further.

"If you find yourself in a situation where interest rates are going up, then you're pressured to exit the market, which will quickly cut those [rising mortgage] costs," he said.

Click to subscribe to the Sky News Daily wherever you get your podcasts

Ultimately, what is needed to reduce the upwards pressure on rents is more housing.

In their manifesto, the Conservatives pledged to "continue to increase the number of homes being built" with an emphasis on rebalancing the market towards more homeownership.

But Sky News analysis found that there is still a long way to go when it comes to house building. In the decade to 2021, the population grew faster or at the same pace as the number of homes in 150 out of 309 local authorities.

Given the shortage of homes, even expanding the housing stock in line with population growth is not enough in many areas.

Moreover, Mr Breach said that the shift in policy towards supporting homeownership has been highly damaging for the rental market.

"The cumulative impact of extended support for homeownership, while not fixing that supply problem, is eventually the rental sector is going to get squeezed," he said.

"Because the supply of space is so tightly constrained by the rationing of new homes caused by the planning system, there is a very sharp trade-off between helping people get on the housing ladder and decreasing rents."

Methodology

Data on the number of new advertised listings and rental prices was provided by property data analytics company TwentyCi, which sources data from a number of property websites and estate agents. Data on enquiries per rental ad was provided by rental website SpareRoom.

Sky News analysis looked at data for the 20 biggest cities and the UK as a whole.